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Chapter 7

Key Risk and Structuring

Provisions for Bankable

Transactions

Jim Thoma

Editor’s Note: Chapter 7 provides greater detail (and some different
perspectives) than what was covered in Chapter 6. The key mes-
sage is to start “on the right foot” with your lender early in the
process.

INTRODUCTION

Ener gy services projects, in all their varying forms, are technically
complex undertakings, requiring significant design, engineering and de-
velopment efforts to create a transaction that is economically compelling
to the end user customer. However, all these efforts could be for naught
if third party financing is required and the transaction is not structured
to satisfy the requirements of the capital markets. Few things are more
frustrating for the customer and the energy services company (ESCO)
than having high expectations for a project, only to learn that funding is
unobtainable due to an improperly structured transaction. This chapter
is intended to help ESCOs and their customers avoid this problem by
identifying and explaining specific risk and structural provisions that
are key to creating a “bankable” energy services transaction.
Developing a bankable energy services transaction requires a
thorough understanding and balancing of the needs and objectives of
the three main parties to the deal—the customer (end user or obligor),
the ESCO, and the lender. Although each party’s perspective must
be considered when developing the deal, this chapter is intended to
primarily represent the lender’s perspective and, by doing so, explain